South Florida Hospital News
Monday August 19, 2019
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July 2007 - Volume 4 - Issue 1

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Health Care System Reform: Goals and Choices

As a nation, we are currently re-examining our health care system. The problems with the system include high cost (about twice the average of other industrialized countries), limited coverage (about 47 million uninsured at last count), and mediocre results (shorter lives and higher infant mortality than in nations which spend far less than we do). Clearly a change is required, but to what? In order to understand our options, we need to start by considering our goals, and then relate those goals to the basic elements of the system.

Goals

In a 2004 report, the Institute of Medicine of the National Academy of Sciences stated the following guiding principles for health care reform:

  1. Health care coverage should be universal.
  2. Health care coverage should be continuous.
  3. Health care coverage should be affordable to individuals and families.
  4. The health insurance strategy should be affordable and sustainable for society.
  5. Health insurance should enhance health and well-being by promoting access to high-quality care that is effective, efficient, safe, timely, patient-centered, and equitable.
These goals are very close to what most Americans want, but we are already over budget. We could try to cut back on services, but Americans already go to the doctor less often, spend fewer days in the hospital and pay more out of pocket than people in other developed countries. As a result, many are focusing on savings in the system we use to pay for health care.

The First Choice: Direct Service Vs. Reimbursement

Under a reimbursement system, providers bill and are paid for each service they provide, and someone (the patient or some third party) pays for the unit of service as it is billed. Under a direct service system, the provider of service is paid a salary (in the case of a physician) or has an annual budget (in the case of a hospital) which covers the cost of providing care, but does not bill for each unit of service.

Moving from reimbursement to direct service usually reduces costs. Under the Canadian system, for example, hospitals have annual budgets and do not bill for particular services. As a result, when a study compared two hospitals of similar size near the US-Canada border, the US hospital had 40 employees doing billing, while the Canadian hospital had one.

The Veterans Health Administration (VHA) is a direct service system, and it is generally agreed that it is highly efficient and provides services of excellent quality. Kaiser Permanente is a direct service system. So is Capital Health Plan in Tallahassee, which receives the highest ratings for quality and customer satisfaction of any health plan in Florida.

Many countries use a direct service system to provide health care to their populations. However, discussion of a health care system that will cover all Americans usually focuses on a reimbursement system.

The Second Choice: Direct Reimbursement Vs. Reimbursement Through Insurance Companies

In an insurance-based reimbursement system, health care is financed indirectly: the employer, or the individual, or the government pays premiums to an insurance company, which in turn writes checks to providers from its own account. In a direct reimbursement system, providers are paid using the funds of the government or employer.

Direct reimbursement ordinarily reduces administrative costs and thus maximizes the proportion of funds spent for actual medical services (the "claims ratio"). For example, in the traditional Medicare program, about 98 percent of revenues are expended for health care services, with only two percent expended for administration. In contrast, in 2005, the major national commercial insurers reported claims ratios ranging from 77 to 84 percent, with 16 to 23 percent of premiums going to costs such as administration, marketing and profits.

How to Get Involved

In South Florida, a new group, Health Care for All - Florida, has been formed to promote dialogue about the choices we face as we consider possible reforms of our health care system. Two town-hall meetings (on March 24 and April 14) have already been organized, and more are being planned. For further information about these events, call (305) 576-5001 ext. 20 or visit http://hcfafl.org/.

Santiago Leon is an insurance broker specializing in employee benefits. He is also a co-chair of Health Care for All - Florida. He can be reached at sleon@accbrokers.com.
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